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5 Jun 2014
EUR/USD Forecast: thoughts on upcoming ECB - FXStreet
FXStreet (London) - Valeria Bednarik, FXStreet Chief Analyst notes that EUR/USD trades at square one, stuck to 1.3600 and lifeless ahead of upcoming ECB decision, as it has been for over a week already.
Key Quotes
“There are a couple of things I have said earlier these days about what may or may not happen today, that I would like to repeat now ahead of the news. Most of them are just educated guesses, as the last time I checked, I didn’t have Mr. Draghi’s cell.”
“First, the ECB is largely expected to implement some sort of facilities in order to boost economy and diminish the risk of disinflation, yet they have been talking about it for so long, market players had already priced in most of it. The ECB has a suite of policy options to deploy, but for the most market has priced in a combination between another round of LTROs, a cut in the main rate currently at 0.25% and/or a cut down to negative on deposits rate. This last, never implemented before by a Central Bank is the more concerning of all, as market reaction afterwards is almost impossible to predict. Consensus however, is that it will weaken the EUR.”
“Second, any strong long lasting impact will come by the hand of the “surprise factor”: if Draghi limits himself to what we already supposed and priced in, then today could be a quite disappointing day. Negative rates are sort of the mysterious factor, so if there are none, and the rest of the announcement is soft, the EUR may well regain the upside.”
“Finally, technical readings will have little to do, except for critical levels that once broken, may trigger stops and therefore produce a directional move. The line in the sand to the downside stands around 1.3570, with stops having increased below as of lately. If the level is broken, the downward move may extend down to 1.5320/30 price zone, and once below this last down to 1.3480, completing a full 100% retracement of this year rally. Critical resistance on the other hand stands around 1.3680, 61.8% retracement of this year rally: once above, 1.3720/40 area comes next.”
Key Quotes
“There are a couple of things I have said earlier these days about what may or may not happen today, that I would like to repeat now ahead of the news. Most of them are just educated guesses, as the last time I checked, I didn’t have Mr. Draghi’s cell.”
“First, the ECB is largely expected to implement some sort of facilities in order to boost economy and diminish the risk of disinflation, yet they have been talking about it for so long, market players had already priced in most of it. The ECB has a suite of policy options to deploy, but for the most market has priced in a combination between another round of LTROs, a cut in the main rate currently at 0.25% and/or a cut down to negative on deposits rate. This last, never implemented before by a Central Bank is the more concerning of all, as market reaction afterwards is almost impossible to predict. Consensus however, is that it will weaken the EUR.”
“Second, any strong long lasting impact will come by the hand of the “surprise factor”: if Draghi limits himself to what we already supposed and priced in, then today could be a quite disappointing day. Negative rates are sort of the mysterious factor, so if there are none, and the rest of the announcement is soft, the EUR may well regain the upside.”
“Finally, technical readings will have little to do, except for critical levels that once broken, may trigger stops and therefore produce a directional move. The line in the sand to the downside stands around 1.3570, with stops having increased below as of lately. If the level is broken, the downward move may extend down to 1.5320/30 price zone, and once below this last down to 1.3480, completing a full 100% retracement of this year rally. Critical resistance on the other hand stands around 1.3680, 61.8% retracement of this year rally: once above, 1.3720/40 area comes next.”